Penny Stock Explained
As per the SEC definition, penny-stock status is determined by share price, not market capitalization or listing service.
Penny-stocks are sometimes called "Micro Cap Stocks".
They tend to be fairly volatile, significantly rising and falling in value in very short spaces of time.
Many low price stocks cycle up and down as many as two or three times a year. Many have a history of falling to a 52 week low and then bouncing back up within a predictable period of time.
Some cycle up off that 52 week low only moderately, while others take off on truly wild rides. Trading Penny-Stocks can be tricky.
Before buying a penny stock in the stock market, it is important to understand where and how trading penny-stocks are processed.
Most Penny-Stocks are not traded on any of the major stock exchanges, but rather on the OTCBB.
Over The Counter________________________________________________________________
Although the NASD oversees the OTCBB, the OTCBB is not part of the NASDAQ stock exchange. According to the SEC, "fraudsters often claim or imply that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it is."
Companies which have been "de-listed" from stock exchanges for falling below minimum capitalization, minimum share price or other requirements often end up being quoted on the OTCBB.
Stock of non-reporting companies (those without current SEC filings) may be quoted in the Pink Sheets. Most OTCBB companies are dually quoted, meaning they are quoted on both the OTCBB and the Pink Sheets.
Market makers and other brokers can use Pink Quote to publish their bid and ask quotation prices. Starting in 1913, and prior to the creation of the electronic system in 2000, these quotes were printed on pink colored paper by the National Quotation Bureau.
The term Pink Sheets is also used to refer to a market tier within the current Pink Quote system.
These stocks are often relentlessly promoted as part of illegal pump and dump schemes.
The SEC explains the truth about Penny-Stocks:
Messages in chat rooms and bulletin board postings may urge you to buy the stock quickly or to sell before the price goes down. Or you may even hear the company mentioned by a radio or TV analyst.
This is a point where a stock trader should be asking himself, what are the risks?
Unwitting investors then purchase the stock in droves, creating high demand and pumping up the price. But when the fraudsters behind the scheme sell their shares at the peak and stop hyping the stock, the stock price plummets, and investors lose their money.
Fraudsters frequently use this ploy with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company."
The Guide For Penny-Stock Investing is a book that will help you with buying and stock trading Penny-Stocks.
Dedicated to the experienced and novice investor who wants to learn about investing in penny-stocks, the book offers the investment and trading strategies used by the author and other experienced micro stock traders.
You will learn how to use strategies used by seasoned penny stock traders and investors that they use to make money in penny-stocks. You will learn about stocks that rose over 1000% and how to apply the reasons they grew in value to your own investments.